When preparing consolidated financial statements of two companies, you value the assets of subsidiary at fair value. Under U.S. GAAP, what happens to the depreciation if the fair value of an asset is higher than its book value?
For example, the gross carrying value of a car is $50,000, its useful life at the beginning of the period was 5 years, and the accumulated depreciation is $10,000. During consolidation the car's fair value has been estimated to be $70,000 (net of the depreciation of $10,000). Is my understanding correct that in the consolidated financial statements the depreciation balance will equal $10,000 and the parent will divide the fair value adjustment by the remaining life of the asset and add it to whatever the subsidiary was charging to arrive at the depreciation expense (10,000 + 7,500) ?
For example, the gross carrying value of a car is $50,000, its useful life at the beginning of the period was 5 years, and the accumulated depreciation is $10,000. During consolidation the car's fair value has been estimated to be $70,000 (net of the depreciation of $10,000). Is my understanding correct that in the consolidated financial statements the depreciation balance will equal $10,000 and the parent will divide the fair value adjustment by the remaining life of the asset and add it to whatever the subsidiary was charging to arrive at the depreciation expense (10,000 + 7,500) ?
